Licensing Patents: Everything You Need to Know

Licensing patents is the process where patent owners give a third-party permission to use their patent rights. 3 min read

Licensing patents is the process where patent owners give a third-party permission to use their patent rights. The owner retains the title of the patent and still has ownership of the invention, but they license rights in exchange for monetary gain.

How to License a Patent

If you are an inventor, you might consider licensing your patent, or the patent rights, to a manufacturer. In return, you collect royalties. You're only licensing the rights and not your actual invention. It is unusual for manufacturers to consider licensing ideas that aren't already patented or have a patent pending.

You'll have to go through four steps to license your invention:

Find manufacturers.

Put together marketing material.

Present that material to manufacturers.

Negotiate a license.

To begin the process of licensing a patent, start compiling a list of manufacturers who have strong distribution channels. You can find suitable prospects by going to trade shows, looking at online databases for entities that make products like yours, or looking in stores or magazines that carry or advertise similar products.

It's best to have an intellectual property attorney draft and negotiate a licensing agreement for you. The agreement should detail the following:

Upfront payments, if any

Royalty amounts

Potential infringement issues

You have the ability to grant an exclusive license to one party or a non-exclusive license to multiple parties.

In an exclusive license, the patent holder keeps the title of the patent but transfers ownership to the licensee. The title holder also transfers the right to sue if the licensee is infringed upon. You can create limits on an exclusive license by promising that you won't license the patent to another party or by limiting its use to a specific field.

When you grant a non-exclusive license, you're agreeing not to sue a licensee for infringing on your patent. In a license agreement, you should spell out any time limits on the negotiated license.

You might choose to assign patent rights to a third party as an alternative to licensing a creation. If you choose to assign rights, it's a permanent transfer or sale. You'll be the assignor, and the party who buys rights is the assignee. After the assignment is finalized, you have no more rights to that patent.

What to Know for Selling a Patent

When you sell a patent, you are likely to be able to get cash for your invention quickly. While people patent thousands of inventions every year, only a small number of these creations generate any profits.

If you sell your patent, you can get money that helps finance other ideas that you have as well as pay off some bills. You also eliminate the huge financial commitment involved in starting up a new business based on your invention.

It's profitable for inventors to license rights to their patent, allowing third parties to then make, use, or sell the product. If you license a patent, you still have ownership of your invention, but you can earn royalty payments on sales. Licensing can prove to be most lucrative if you partner with a company that's already well-known and trusted by consumers. The licensee holds the liability for mishaps related to the product, not you.

While you'll collect all profits if you market your own invention, you may wind up spending most of those profits on legal fees, startup costs, and accounting fees. There's also the stress to deal with from running your own business.

If you want to sell or license your patent, start out with professional marketing efforts. Design formal letters and brochures that show your creation in its best light. Find manufacturers you'd like to work with, including potential users of your invention. Go to invention or trade shows where you can network with businesses or individuals who may be interested in your invention.

While holding a patent may be useful, you can generate a good deal of money if you opt to license or sell your patents. This could give you the important financial help you need to pursue other interests or live a more comfortable lifestyle.

If you need help with licensing patents, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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